I should like to show that Jonathan Portes most probably did not cause Brexit. To do so, however, I first must examine the plausibility of the case that his actions and words did indeed provoke a decisive margin for the Leave vote in the EU referendum last June.

Portes is Principal Research Fellow, formerly Director, at the National Institute for Social and Economic Research in London. From 2002 to 2008, he was chief economist at the U.K. Department of Works and Pensions and, following that, chief economist at the Cabinet Office. David Goodhart has described Portes as “one of the architects of Labour’s immigration policy” during that period. He is a regular contributor to the Guardian, frequently on migration issues.

In a 2012 blog post, Portes fondly reminisced that explaining the lump-of-labour fallacy “to six successive Secretaries of State for Work and Pensions, usually in the context of immigration… was probably the most useful thing I did, from a public policy perspective, in my six years as Chief Economist at Department for Work and Pensions.” The lump-of-labour fallacy is the spurious claim that supporters of some policy or other are motivated by a false belief that there is only ever a “certain amount” of work to be done.

The alleged belief is indeed false, as is the claim that support for the policy in question is motivated by it. The bogus fallacy claim was a staple of 19th century anti-trades union propaganda. Portes thus prided himself on his acumen in persuading Labour cabinet secretaries “to go out and defend policies that were consistent with” an archaic, reactionary view of the labour market.

That is not to say that the policies defended by cabinet secretaries coached by Portes were reactionary. The phrase “were consistent with” is notoriously ambiguous. Wearing an amulet is “consistent with” being a Satanist. It is also consistent with not being a Satanist. One must always be wary of “affirming the consequent.”

A few weeks ago, I had a post looking at police killings of civilians. Using statistics on police shootings, homicides, and demographics, I reached the controversial conclusion that:

contrary to popular perception, the data seems to show that Black people are less likely to be met with lethal force than non-Black people would be for behavior that genuinely constitutes a threat toward police personnel. At the same time, police are, on average, harsher toward Black people than toward non-Black people because the police are more likely expect a threat from Black people than from non-Black people. (Again, due to the high murder rate in general, and high rate of killing police.) Put plainly: Black people are subject to more low-level police attention (i.e., traffic stops, searches), but less high-level police attention (i.e., actions that reduce violent crime).

When the numbers point one toward a conclusion that neither fits the popular perception nor the popular mood, it is natural to take another look and see if one can find more information that either disproves one’s conclusions or supports them. In that spirit, I stumbled on this paper by Min-Seok Pang and Paul A. Pavlou.

Their paper states:

To theorize the role of technology use, we draw upon signal detection theory (Green and Swets 1988, Wicknes 2002, MacMillan 2002, Correll et al. 2002, 2014) to propose a simple, stylized model for a police officer’s decision to pull the trigger. We model that when deploying deadly force, the officer takes two factors into consideration – (i) a risk that a suspect poses an imminent, life-threatening danger to bystanders and/or the officer herself and (ii) a perceived risk that she would be held accountable for the death. Based on this model, we derive how technology use influences fatal shootings by police officers. First, technology use for intelligence analyses and access help reduce the ambiguity in the degree of violence of the suspect perceived by an officer. Second, the use of evidence gathering technologies, such as wearable body cameras, is likely to help the officer justify her shooting, making her less reluctant to deploy fatal force.

Back when I worked for the claims department of a major insurance company, I got stuff. Some of the stuff consisted of tickets to Broadway shows and sporting events, and sometimes I got bottles of booze, Canadian Club being a popular choice for some reason. These items were tendered to me by auto appraisers, repair shops and other firms, large and small, that wanted the business my company could offer. Corrupt souls that they were, they offered these items as bribes. Pristine young man that I was, I accepted them as gifts. I was, in my own modest way, Hillary Clinton before her time.

The pattern established by the vaunted Cohen of Claims is similar to the one later copied by Clinton of Chappaqua. You may note that when it came to these matters — these matters being the acceptance of ethically dubious gifts — Hillary Clinton was lots of quid and little quo. The mountains of money that came into the Clinton Foundation, some of it offered by otherwise heartless men, apparently got the donors nothing. They came from parts of the world where a man’s bribe is his word, and yet money offered in New York to the foundation did not open a door in Washington at the State Department.

As a journalist for a major local newspaper, he and his colleagues were inundated with gifts of the sort that Cohen was as an auto insurance claims adjuster. Free passes to movies, to the annual auto show (fun), boat show (also fun), flower show (pretty), big-deal movie premiers (very occasionally; this was not NYC), and the latest hit play touring after (or before) its Broadway run. Glamorous cocktail parties called “press parties”. (Clothes, especially ones for fancy gatherings, were expensive, and my mother would always have two “dressy” dresses, both of them that “went with” black heels (also expensive back then) that she would alternate, depending on who she thought would be attending the particular event or gathering.

During the winter holiday season, the doorbell was ringing often. There were bottles of French designer perfumes and colognes for my mother, bottles of high-priced alcohol (my mother would just call them “bottles,” as in, “It’s a ‘bottle,’ from so-and-so,” usually said with a sigh; “so-and-so” being a “press agent,” these days known as people in “public relations”). Our living room was filled with poinsettia plants; we were Jewish, but enjoyed the colorful displays. The tops of my parents’ bedroom dressers looked like a perfume counter at Saks; almost all the bottles remained in their unopened boxes, for years. The basement had a mini upscale liquor section, the bottles unopened, also for years. And years.

One night when I was 10, my father came home gingerly carrying a lovely roughly-200-year-old Japanese woodcut that he’d been sent by the someone at the public relations office at the local art museum. The museum was having a special exhibit of antique Japanese art, and my father’s newspaper had run a lengthy picture-filled article about it in the Arts section before the exhibit opened. The exhibit was one of the most successful in memory, and my father had played a role in the article’s prominence and length in the Arts section. The museum’s PR person sent my father the woodcut, along with a note of appreciation, attributing the popularity of the exhibit largely to that article. The paper’s art editor, George, himself an artist and art collector, and a close friend of my father’s, had chosen the pictures for the article, and wrote the article. My father asked him if he could place a value on the woodcut. He did, and my father paid the museum for it.

My father not long before had asked him if he could find an affordable large painting for the main wall, behind the couch, in our living room, and George suggested instead that my parents by a set of Japanese woodcuts from the same era that would look nice with the museum woodcut that would be on another wall. George found a set of four that told a story, and framed them in narrow, plain wood frames that he covered with rice paper he died a light blue, with natural-colored rice paper matting. They were beautiful, and, I’m quite sure, the most valuable things my parents ever had in their home.

That was my father’s foray into quid pro quo—an antique Japanese woodcut he received as a gift and then paid for. My father, George, and a few others at the paper had received free passes for two to the exhibit before it opened, along with a lengthy press release about the upcoming exhibit.

In an addendum to this recent post of mine here at AB, I wrote:

For me this general election campaign has been an exercise in frustration and dismay at the failure of Clinton and her campaign to apprise the public of critically important things about Trump that they don’t already know. Like Trump’s monetary motive for his coziness with Putin, and his methods of financing his real estate empire that included bank fraud and partnerships with corrupt foreigners. Things that make the Clintons’ self-dealing and misrepresentations to the public look utterly inconsequential by comparison.

And like what billionaire is backing Trump financially and calling the campaign shots, and would be calling the shots in a Trump administration. And what those shots would be.

Whatever favors Clinton did as Secretary of State for Clinton Foundation donors, they were trivial in that they had nothing to do with making or changing government policy, it appears. And the Clintons’ rapacious money mongering didn’t defraud banks or individuals. And while it served their personal financial interests well, their foundation did have the effect of actually doing some real good on fairly widespread scale. The Clintons, in other words, aren’t sociopaths. Trump is.

Finally—finally—now, Clinton is angry enough about Trump’s statements about Clinton Foundation/State Department connection that she’s willing to depart from her campaign’s strategy of telling the public what they already know about Trump, but nothing else, because informing voters about the stuff they don’t know would require a slightly complex discussion. Telling people what they already know is quick and easy and soundbite-y. So it’s what her highly paid consultants and top campaign staff advise.

But in a stark, sudden and surprising departure, Clinton is about to begin educating the public about something somewhat complex, something that requires that she tell them things about Trump that they don’t already know. She’s about to explain the alt-right, apparently in some actual depth, and illustrate that Trump is the alt-right’s candidate because he himself is alt-right.

So is his billionaire. The public has no idea he has one, much less what the billionaire’s specific agenda is. And if Clinton finally is ready to tell the public that, yes, Trump has his very own billionaire supporting his campaign with many millions of dollars, she will get some help from John McCain, who obviously reads Angry Bear even if Clinton and her campaign folks don’t. Although, of course, it’s more accurate to describe the relationship as one in which the billionaire has his very own presidential nominee.

Amid the widespread media focus last on the Trump campaign’s shakeup that ended Paul Manafort’s reign there (such as it was) and brought in Breitbart alum Steve Bannon as campaign CEO (interesting title, but whatever) and elevated Trump pollster Kellyann Conway to campaign manager, a critical aspect of this, though reported in-depth by the New York Times and a couple of other major news outlets, has, clearly, not made it mainstream: that Trump’s actual current puppeteers are the father-daughter duo of Robert Mercer and Rebeka Mercer. And who they are.

What followed that colon detailed enough about Robert and Rebeka Mercer to disabuse the reader of any conception that a Trump administration would be pro-blue-collar worker and, to borrow from Bernie Sanders, anti-the-billionaire class. A purpose of the post was to express dismay that neither the Clinton campaign, nor the DNC, nor most of the mainstream news media had deigned to try to educate the public about who is financially propping up the Trump campaign, and what they hope to accomplish in a Trump administration.

Another purpose was to try in my tiny-readership way to illustrate the absurdity of Trump’s claimed equivalency of his billionaires’ financial backing of his candidacy and the fundraising assistance to Clinton from Hollywood multimillionaire progressives like Timberlane and Biel and other extremely wealthy people whose financial interests are counter to their support of Clinton and of progressive down-ballot candidates, especially for the Senate and House.

“The fact remains that Hillary Clinton never took action as Secretary of State because of donations to the Clinton Foundation,” said Josh Schwerin, a Clinton campaign spokesman. Apparently, this is true, and it no doubt breaks the hearts of Republicans everywhere who think that Clinton is both a crook and a fool. She is possibly only a bit of the former and certainly none of the latter.

Let us take the case of Casey Wasserman. He runs the Wasserman Media Group, a sports marketing and talent-management agency. According to The Post, Wasserman’s charitable foundation contributed between $5 million and $10 million to the Clinton Foundation and his investment company also hired Bill Clinton as a consultant, paying him $3.13 million in fees in 2009 and 2010. For this, aside from a warm feeling, it seems Wasserman got nothing. When he tried to get the State Department to approve a visa for a British soccer star with a criminal record, he got nowhere — so much quid, so little quo.

As Cohen of Claims, I followed the same M.O. Not only did I treat every bribe as a gift, but also I never demanded anything from anyone and went out of my way to award my business on the basis of competence alone. In fact, on the rare occasion that someone complained that I was not sending enough business their way and wondered if a little cash would help their cause, I cut them off completely. I insisted on good work, promptly done. I could not be bought.

My father could not be bought, either; he was not bought. Which is not to say that none of his colleagues, or his counterparts at the other local newspapers, were, but it is to say that most were not and that the ones who were were bought cheaply and that the quo, while important to the one who offered and gave the quid, surely was pretty trivial to the larger public.

It also is not to say that $3.13 million in, um, consulting fees directly to Bill and Hillary Clinton, not to their foundation, in the space of two years—those two years being the depths of the financial crisis and recession—is trivial. It’s not. Nor did it go to a good cause, as donations to the Foundation at least did. Cohen writes:

But just as I knew that the gifts I got were intended as bribes, and just as only I knew that the bribes were buying nothing, so did Hillary Clinton know that the huge amounts of money raised by the Clinton Foundation were coming from donors who thought they were buying something — access, a favor down the line, even a choice seat at some glitzy Clinton event with the requisite selfie to be sent to clients, spouses and interested others. And just as I never spelled out my rules — never said that the gift/bribe would buy nothing — I, like the Clintons, understood what might be the expectations of the donors. Some of them, probably, felt more strongly about taking a picture with Bill Clinton than about AIDS in Haiti.

The same pattern repeats itself over and over. Gilbert Chagoury, a Nigerian billionaire of huge philanthropic endeavors — he is a benefactor of the Louvre in Paris, for instance — donated between $1 million and $5 million to the Clinton Foundation. Yet, when he contacted the foundation for help in meeting with a State Department official regarding Lebanon, where he has business and political interests, he got nowhere. Still, like the occasional tycoon from anywhere, he might have expected otherwise.

There is precious little that’s charitable about the world of charity. Raising money, like sausage-making, ain’t pretty to see, and it would be just criminally naive to rely on the big hearts of big donors. Much is bartered — access, recognition, social standing, proximity to the star at a dinner, a call afterward and, unspoken, the promise of influence if influence is needed. The Clintons knew exactly what was happening — a kind of alchemy in which potential bribes were turned into innocent gifts, leaving everyone with clean hands and, inevitably, the noxious odor of scandal.

What matters at this juncture, in this particular presidential campaign, isn’t what the Foundation or even the Clintons personally received, but instead what, if anything, they gave in return, and what, if anything, Hillary Clinton as president would actually give as quo. And what Trump as president would, and to whom, and to what extent. And what the quo’s importance to the public would be.

I’ll quote myself here:

Whatever favors Clinton did as Secretary of State for Clinton Foundation donors, they were trivial in that they had nothing to do with making or changing government policy, it appears. And the Clintons’ rapacious money mongering didn’t defraud banks or individuals. And while it served their personal financial interests well, their foundation did have the effect of actually doing some real good on fairly widespread scale. The Clintons, in other words, aren’t sociopaths. Trump is.

Please, no false equivalencies on this. Okay?

Neither of my two recent posts from which I quote received any attention. I hope this one does.

____

UPDATE: Reader Zachary Smith and I just exchanged these comments in the Comments thread:

Zachary Smith / August 30, 2016 2:24 p.m.

As part of the murder process of Muammar Gaddafi, he was sodomized with a bayonet. Out of respect for any children reading this blog, I’m not going to spell that out any further. What was Hillary’s RECORDED reaction?

“We came, we saw, he died,” followed by a laugh and gleeful hand clap.

Under my definiton of “sociopath”, Hillary Clinton qualifies on that one alone. Of course there are others….

*** My father, too, turned bribes into gifts. ***

I know some saintly people myself, and have no difficulty accepting this claim at face value. Stretching the analogy to the Clinton Foundation is, in my opinion, a stretch too far. If Hillary was as pure as the driven snow, why did she work so hard to ensure her communications were beyond the reach of the Freedom Of Information Act? Why has the State department refused to release her meeting schedules until after the election?

Finally, using Richard Cohen as an source for anything is beyond the pale. This shill for Israel was all-in for the destruction of Iraq. He was a big fan of the destruction of Libya. He’s a huge booster for the destruction of Syria. And he most definitely wants somebody in the White House who will finish off Iran.

That person is Hillary Clinton.

____

Me / August 30, 2016 3:04 pm

Well, first of all, my father was never a movie critic, a theater critic, never covered the auto industry or the pleasure boating industry, or, really, anything else that could have involved him in a quo on anything like a regular basis, so maybe that wasn’t a good line for me to use and maybe this wasn’t a good analogy after all. I was never really sure what these folks were after from my father, but that was the era of “press parties” and free passes to this and that, and there certainly were a lot of those. (Maybe these still are; I have no idea what the ethical aesthetic for journalists is these days.)

Still, not a truly apt analogy, as you’ve now illustrated, even though Cohen’s trip down memory lane did evoke incidents from my childhood.

But the point of my post is that the heavy media focus on Clinton’s conflict-of-interest-type transgressions, and the near-total lack of it regarding Trump, the Russian connection being the lone exception, is inappropriately asymmetrical, and does the voting public a major disservice.

As for Libya, you may well not know that the civil war there was quite well underway when this country intervened in order to fend off the imminent slaughter by Gaddafi of about a quarter-million people trapped with no defenses in a particular Libyan city. It was intended as, and was, a humanitarian intervention. And it was considered so throughout much of the Middle East. The problem came afterward, after Gaddafi’s fall, when this country did nothing to assist the rebels, and they were overtaken by ISIS.

As for Syria, here too I’m not sure why you think this country caused its civil war, but it did not.

I’ve hardly made a secret here at AB of my near-virulent distaste for Hillary Clinton and, these days, Bill Clinton. I’m, suffice it to say, not a shill for her. I really, really dislike her personality. But she’s running against Robert-and-Rebeka-Mercer-and-Paul-Ryan’s-legislative-agenda (believe me, and I don’t mean in the Trump sense). I’m sorry that that’s the case. But it is the case.

And about my father, he wasn’t a saint, but he wasn’t that far from one, in my opinion and that of almost everyone who knew him. He was a very good person.

R.I.P., Daddy.

Update added 8/30 at 3:24 p.m.

____

SECOND UPDATE: I’m adding this exchange of comments between reader Nihil Obstet and me because my response to him clarifies a key point about my post that, judging from the Comments thread, some readers did not understand:

Nihil Obstet /August 30, 2016 4:08 pm

The problem with corruption in Washington these days is that they don’t know it’s corruption — it’s the atmosphere they breathe, the ocean they swim in.

People who want something from you give you gifts? Well, the gift-giving has nothing to do with what they want you to do. They just like you. And you aren’t at all influenced by the gifts and their presumed affection. Unlike the rest of humanity, you aren’t at all affected by your perception of others’ valuing of you. Really?

In a criminal trial, potential jurors who know anyone who will be involved in the trial are dismissed. Silly courts? I don’t think so. That level of ignorance between the governed and their representatives is neither possible nor desirable, but its requirement where government will act is, I think, an accurate indication of the probability of conscious or unconscious influence of relationships.

If gift giving to those in power isn’t corrupt or corrupting, what’s the problem with Citizens United again?

In short, this pabulum about the real purity of backscratching is the crony justification of corruption. It’s not corruption. It’s just the way nice honest grownup people with favors to give live.

____

Me / August 30, 2016 5:55 pm

The thing here is that when there has been no action by the recipient of the gift, there is no backscratching. That’s Cohen’s point, and mine.

The problem with Citizens United is that extremely wealthy individuals, and corporations, are funding candidates who as elected officials will be making policy decisions that serve the financial interests of the people who funded those elected officials’ campaigns.

With Clinton, these people were doing what they were doing because she was Secretary of State and they wanted certain things from her as Secretary of State. If she didn’t oblige them, then the issue is one of access–they were able to get through to Abedin or whoever to request these things. That’s not pretty, but it’s not the same as actually getting what they’d requested.

There are big problems, of course, with potential conflict of interest concerning these past Foundation donors and consultant payments to Bill Clinton and speech payments to him and her. Big problems. But my post, and Cohen’s column, addressed only the issue of quid pro quos when Hillary Clinton was Secretary of State.

Judging from the comments, I think several readers of my post missed that fact.

And here’s another comment of mine in the thread, this in response to a comment by Mike Kimel:

“It won’t affect my judgment” is different than “It can’t affect my judgment, because I have no judgment to exercise on this.” Which was true for my father and most of his colleagues.

But it also is different than “It didn’t affect my judgment, as you can see. I didn’t do what the gift-giver wanted, and in fact did nothing.” Which is what Cohen did as a claims adjuster. And, with the exception of trivialities, appears to be what happened at State.

If there eventually is evidence of instances in which something really did happen, that would be a big, big problem. But Trump is a walking conflict-of-interest machine, and his funders/puppeteers are far, far worse than Clinton’s, in almost every respect, not least on climate-change matters.

What this election has done is expose the awfulness of the Democratic Party’s nomination process. Every single day, when I click on the internet, I think, yet again, what a tragedy it is that Clinton so wrapped up the Party before the election season even begun that no progressive other than Bernie challenged her. Not Sherrod Brown, not Elizabeth Warren. No one but Bernie, whom the political news media insisted month after month could never actually win the general election, if nominated.

It makes me sick. and I think this will be the last Dem presidential primary season in which that will happen. But we’re faced with a contest between Trump and Clinton. We each have to choose whom we will support.

Hope this clarifies my post. Especially since it’s my final comment about it. I think.

The business groups claim that the regulations are making business harder for big companies to carry out transactions, referencing the proposed merger between U.S. drugmaker Pfizer and Ireland pharmaceutical company Allergan (both members of the Chamber of Commerce). That merger, projected to save the U.S. company about $35 billion in taxes, fell apart immediately after the new regs were released. See Michael Merced and Leslie Picker, Pfizer and Allergan Are Said to End Merger as Tax Rules Tighten, NY Times (Apr. 5, 2016). the lawsuit claims that Treasury did not have authority to issue the regulations and that there was insufficient notice to taxpayers under the Administrative Procedure Act.

This is an open thread inviting discussion of the very serious people who discuss how opinions differ on shape of planet, but no longer claim both sides have a point. I am old enough to remember when only shrill dirty fucking hippies argued that the GOP had gone crazy. After the Trump nomination, that fringe argument is made by centrist and many conservatives. However, the villagers who were wrong (again) remain prominent and expect to be taken seriously. I am not the first (or one of the first thousand) to note the similarity with semi repentant Stalinists who argued that they were wrong for the right reasons while anti Stalinists were right for the wrong reasons.

William Salaten is a very leading example. The always excellent Josh Marshall sent me to this William Salaten post whose central conceit is that the GOP is like a failed state and Trump is like a warlord. It is an interesting analogy. The post is generally excellent and well worth reading.

However, I felt the need to pound my head against the wall (and post here) when I read

“When did the collapse begin? Maybe it was in late 2008 and early 2009, when congressional Republicans decided to block anything Obama proposed. Maybe it was in 2010 …”

Here Salaten insists that way back in 2007, he was right and the DFHs were wrong, because the GOP was a serious party. He doesn’t even consider the possibility that the collapse began before 2008 when he was dismissing the argument that the GOP was collapsing.

So it is obvious that the GOP didn’t begin to collapse in 2003 when a Republican President ordered the invasion of Iraq, or in August 2002 when the CIA began to torture prisoners or in 2001 when George Bush signed the Patriot Act while also ordering the NSA to violate it, or in 2000 when Republicans denounced Gore’s efforts to steal the election in which he won the popular vote, or in 1998 when the House impeached Bill Clinton over a blow job, or in 1996 when Fox News was launched, or in 1995 when the GOP caused a government shut down to support their demand for Medicare cuts, or 1985 when, as Reagan said “mistakes were made” or in 1980 when the GOP embraced voodoo economics, or 1972 (watergate), or 1968 (Southern Strategy), or 1964 (Goldwater nomination) or 1946 (McCarthy elected).

The GOP has been collapsing for a long long time. Sober moderate Ballanced centrists are proud of the fact that they didn’t notice until Trump was nominated.

A few weeks I wrote a post looking at the correlation between the top marginal tax rate in a given year and the growth in real GDP per capita over subsequent years. This post is the first of several follow-ups. It will provide a simple way to estimate the optimal top marginal tax rate – that is, the tax rate at which economic growth is maximized. It will also deal with a weakness that vexes many economic studies, namely how do you estimate the effect of taxation on growth using historical data without ignoring the fact that the economy has changed a great deal over the time period for which we have data?

Let’s start with the second issue first. An honest critique of my previous post, and of similar studies, is that saying “the economy grew faster in year X when the tax rates were higher/lower than in year Y” can be problematic if years X and Y are separated by decades. This is particularly true if there is a clear trend in the data. (For the statistically minded, this is the unit root problem.) In a perfect world for estimating the effect of taxes, the following conditions would be true:

i. we would only compare years that are not too far apart
ii. we would be able to observe the entire range of top marginal tax rates during the period in which we made the comparison

So how do we do both things (as much as is possible) at once? What I came up with is this: use rolling blocks of time. In the example below, we have the growth in real GDP per capita from one year to the next in the third column and the tax rate in the fourth column. The fifth column shows the correlation over the next five years between columns 3 and 4.

Figure 1

So, for example, the t to t+1 (1 year) growth rate from 1985 to 1989 and the tax rate at year t from 1985 to 1989 (see red outlined boxes) have a correlation of .424 (red shaded cell). The correlation is positive, which is to say, during those years, faster growth occurred in the years in which tax rates were higher. When five years in a row have the same tax rate, it is not possible to calculate a correlation (see the purple blocks). Otherwise, there is a correlation calculated for every year.

So, in any given year for which it is possible to compute a correlation, we have:
a. a top marginal tax rate
b. an indication as to whether growth rates increase or decrease as that top marginal tax rate changes over the next few years

Note that in every case, the comparison is over a very short period of time – in this instance 5 years. The effect of increasing and decreasing tax rates is only compared within 5 year blocks of time. The unit root problem goes away.

The data could be organized into buckets. I organized mine as follows:
I. 20% or more, but less than 25%
II. 25% or more, but less than 30%
III. 30% or more, but less than 35%
etc.

Using data beginning in the Eisenhower administration, I then took the median correlation for each bucket and graphed (median) correlations on the y axis against tax rates on the x axis:

Figure 2
So how do we interpret this? Well, when the top marginal tax rate is very low, the correlation between the top

On the blogosphere, there is an interesting debate about whether, when the next recession arrives, interests rates will be high enough that the normal approach of cutting the target federal funds rate will be sufficient.

In chronological order David Reifschneider, Jared Bernstein, Paul Krugman and Dean Baker contribute their thoughts (and in the case of Reifschneider extensive calculations and new research).

In an influential (pdf warning) paper , Reifschneider cautiously comes close to concluding that, given current Fed policy and in particular the 2% inflation target, the safe short term interest rate will probably rise enough before the next business cycle peak that cutting it will be enough.

“I am not much comforted. There are a lot of “ifs” in Reifschneider’s story (all of which he is totally straight up about).”

if [skip] if [skip] if the QE and guidance have the positive growth and jobs impacts the model says they do; if people’s expectations are truly moved by the forward guidance, which implies future Fed officials will maintain the program. Then sure, sounds good.

But I’m skeptical. The figure below, from Bloomberg News, shows a real problem for “if” No. 1. It draws a line through the “dot plots”: the Fed’s own predictions about where rates will go. The 3 percent at the end of the figure is the perch Reifschneider assumes they’ll get to before the next downturn.

The other lines at the bottom of the figure are the problem. They show market expectations of the funds rate and the fact that they’re so low creates a double problem for the Fed. First, if the markets are right, the limited firepower problem will be acute. Second, credibility. Remember, forward guidance works through market participants altering their expectations. At this point, the markets don’t believe the Fed’s projections.

It is very very clear that investors expectations about future Fed policy are not determined by FOMC forecasts of future Fed policy. At the moment, market participants expect a much lower Federal Funds Rate, but the point is that the listen, they hear, but they don’t necessarily believe. Regular readers know I totally agree and think this is a very important point. Also, I very much agree with “Re “if” No. 3, and again, Reifschneider is forthright on this point (I found his paper to be a model of clarity and caution), there are reasons to worry about whether monetary policy really has the growth and jobs punch the model says it does.” I have been worrying about overestimates of the effects of QE for 6 years now.

Paul Krugman agrees. As usual, he stresses asymmetric risks. He argues that “as Jared says, if the argument is wrong in any of several plausible ways — say, if the natural rate of interest is now much lower than it was in the past — this could be very wrong.”

Interestingly and unusually, Dean Baker disagrees with Krugman. Now I hate the fact that I almost never disagree with Krugman, so this raised my hopes.

Baker is brilliant as usual. He argues

… I can’t say I share their concern.

First, we have to remember that recessions aren’t something that just happens (like global warming :)). Recessions are caused by one of two things: either the Fed brings them on as a result of raising interest rates to combat inflation or a bubble bursts throwing the economy into a recession.

Taking these in turn, if the Fed were raising interest rates in response to actual inflation (and not the creative imagination of FOMC members) then we would presumably be looking at a higher interest rate structure throughout the economy. In that case, the Fed should then have more or less as much room to maneuver as it has in prior recessions.

The bubble story could be bad news, …

Baker then argues that it is possible to detect bubbles and prevent them from expanding to dangerous levels (sizes ? volumes ?) before they burst. This gives him another chance to remind readers of the many times he warned of the housing bubble before it burst, and of the fact that he warned that it would cause a severe recession when it burst.

I have some problems with this. First, I don’t think that even the very smart Dean Baker should be so confident.

Second it isn’t clear to me what should be done about a bubble which inflates without causing the economy to over heat. The housing bubble could have been restrained by high interest rates, but at the cost of high unemployment since it didn’t lead to extraordinarily low unemployment. And housing is the one sector which the Fed can most easily restrain. I’m not so sure that higher interest rates would have restrained dot com mania (fortunately the bursting of that bubble did little damage). I’d feel a whole lot better if I could think of a case in human history of a bubble which was restrained by the monetary authority (that is of a soft landing).

Third, and this is relatively important, it isn’t as if the USA has the exorbitant privilege of being the only economy which can initiate a world wide recession. There sure seems to be a huge construction bubble in China (a huge increase in leverage and also less concrete was poured in the USA in history than in the PRC in the last 3 hours or whatever). The USA doesn’t rely all the much on exports, but the correlation of GDP growth in different countries is much higher than that which can be explained through trade flows (writes Krugman who should know).

I am old enough to remember the Oil shocks. The recessions which followed the oil shocks look a bit like ordinary inflation fighting recessions, but, at the time, the unique features were very much stressed. I think it is in large part a coincidence that they followed periods of slack monetary policy, tight labor markets and accelerating inflation. I think such a shock hitting an economy with low inflation and anchored inflation expectations could cause a recession with low interest rates at the peak.

Finally what about total collapse of Europe ? It often seems possible over here.